It might seem like a convenient option to get cash quickly, but withdrawing money from your credit card, known as a cash advance, is something financial experts generally advise against. While technically, can you withdraw money from your credit card? Yes, most credit cards do allow cash advances. However, understanding the mechanics and costs involved is crucial before you decide to use this feature.
There are significant downsides to using your credit card to get cash, primarily due to the high costs and potential negative impacts on your credit score. Let’s delve into the two main reasons why experts recommend avoiding credit card cash advances.
1. Cash Advances Come With High Costs
The immediate appeal of a cash advance can be tempting when you need cash urgently. However, the cost of withdrawing money from a credit card can accumulate very rapidly. Unlike typical credit card purchases, cash advances are treated as loans from the moment you take them out. This means credit card companies immediately start charging you fees and interest.
Here’s a breakdown of the expenses associated with credit card cash advances:
- Cash Advance Fee: Most credit card issuers charge a specific fee for cash advances, typically a percentage of the withdrawn amount or a flat fee, whichever is higher. This fee often ranges from 3% to 5% of the cash advance amount.
- Higher Interest Rates: The interest rates applied to cash advances are usually significantly higher than those for regular purchases. Furthermore, unlike purchases which often have a grace period, interest on cash advances begins accruing immediately from the withdrawal date. There’s no grace period, so interest charges start right away, even if you pay your bill in full by the due date.
- ATM or Bank Fees: Depending on how you withdraw the cash – whether through an ATM or at a bank – you may incur additional fees from the ATM operator or the bank itself.
Consider the interest rate differences. For instance, the Blue Cash Preferred® Card from American Express, known as a top choice for grocery rewards, has a variable APR for purchases ranging from 18.24%-29.24%, but a significantly higher 29.49% APR for cash advances (terms apply, see rates and fees). Similarly, the Capital One QuicksilverOne Cash Rewards Credit Card, suitable for those with fair credit, has a purchase APR that is the same as the cash advance APR: 29.74% variable. This demonstrates that cash advances are consistently more expensive than standard credit card usage.
2. Negative Impact on Your Credit Score
While cash advances themselves don’t appear as a separate item on your credit report, they can indirectly harm your credit score. The primary way this happens is through your credit utilization rate. This ratio represents the amount of credit you’re using compared to your total available credit. Withdrawing a cash advance increases your used credit, potentially pushing your credit utilization rate higher.
A high credit utilization rate can signal to lenders that you are becoming overly reliant on credit and may have difficulty managing repayments. This can negatively impact your credit score, making it harder to get approved for loans or other credit products in the future, and could also lead to less favorable interest rates.
In Conclusion
While the answer to “Can I Withdraw Money From My Credit Card?” is yes, it’s generally not a financially sound decision. The combination of high fees, immediate and elevated interest rates, and the potential negative impact on your credit score makes cash advances a very expensive way to access funds.
Before considering a cash advance, explore alternative options like:
- Building an emergency fund for unexpected expenses.
- Exploring personal loans or lines of credit with lower interest rates.
- Considering balance transfers if you need funds to consolidate other debts (though be mindful of balance transfer fees).
Understanding the true cost of withdrawing money from your credit card is essential for making informed financial decisions and maintaining healthy financial habits.
For rates and fees of the Blue Cash Preferred® Card from American Express, click here.
